Wearables maker Fitbit (NYSE:FIT) and action-camera maker GoPro (NASDAQ:GPRO) burned a lot of investors over the past few years. Fitbit went public at $20 in June 2015, surged to nearly $50, then tumbled to about $5 a share today. GoPro went public at $24 in June 2014, skyrocketed to almost $90, then crashed back to about $5.

Fitbit and GoPro sell different products, but the two companies stumbled for similar reasons. Both companies spooked investors with secondary offerings, underestimated the competition, and overestimated the growth potential of their markets.

A man in a dress shirt pumping his fist while looking at his phone with an upward trending chart on his computer screen.

Image source: Getty Images.

However, Fitbit is still one of the top wearable makers in the world, while GoPro still owns the action camera market. Both companies are diversifying their portfolios and cutting costs to stabilize their businesses. Could those efforts make either $5 stock a good turnaround play?

A long road back...

Fitbit's revenue rose 149% in 2015, climbed another 17% in 2016, then fell 26% in 2017. For the current year, Fitbit expects its revenue to drop 7%. Fitbit's decline was caused by its market share losses to rivals like Apple, Xiaomi-backed Huami, Huawei, and Garmin.

It also constantly lost ground in the U.S. market, where consumers pivoted toward full-featured smartwatches like the Apple Watch 3. Fitbit introduced new products -- like the Fitbit Ionic smartwatch, Alta HR, Fitbit Aria 2, and Fitbit Flyer -- to keep up, but the development and marketing of those devices boosted its operating expenses.

As a result, Fitbit posted negative year-over-year revenue growth while failing to generate a non-GAAP profit for five straight quarters. It also expects its gross margin to contract throughout 2018, due to a shifting device mix and fixed cost deleveraging. Analysts expect Fitbit to post its third straight year of annual losses this year.

A digital rendering of different styles of Fitbit's Ionic smartwatch.

Fitbit's Ionic smartwatch. Image source: Fitbit.

GoPro's revenue rose 16% in 2015, fell 27% in 2016, and dipped less than 1% in 2017. Analysts expect GoPro's revenue to drop another 9% this year, as it struggles to sell new action cameras in a market dominated by smartphones.

GoPro's incremental upgrades (like smaller form factors and cloud connectivity) are also getting less impressive, so its existing users are postponing upgrades. GoPro posted net losses over the past two years, and analysts expect that streak to continue with another loss for 2018.

GoPro also faces a growing number of action camera makers -- like Garmin, the Xiaomi-backed Yi Technology, and Sony -- which are saturating its niche market. In response, GoPro diversified its portfolio with new products, like its Karma drone and its 360-degree Fusion camera.

Unfortunately, the Karma fared poorly against DJI's drones, and GoPro shuttered the business earlier this year. The Fusion also arrived late to the 360-degree market, and many customers interested in panoramic or VR content already purchased similar cameras, like Samsung's Gear 360, instead.

GoPro's Karma drone against a white background.

GoPro's Karma drone. Image source: GoPro.

But what about the catalysts?

Things look bleak for both companies, but there are still a few catalysts on the horizon. Fitbit's strong growth abroad might eventually offset its weak U.S. sales, while the expansion of its digital ecosystem -- which includes its subscription-based Fitbit Coach and its acquisition of digital health platform Twine Health -- could lock in more users. The company is also reportedly mulling the development of a kids' smartwatch.

GoPro plans to strengthen the company with the "six priorities" it highlighted last quarter -- strengthening its analytics capabilities, boosting consumer engagement through its social networks, launching more products for more price tiers, improving its software, attracting more users to its subscription-based GoPro Plus platform, and hiring more top talent.

Both companies are also frequently mentioned as takeover targets, since their market caps are higher than their annual revenues. Fitbit has a market cap of $1.2 billion, and has a P/S ratio of just 0.7. GoPro has a market cap of about $800 million, and also trades at 0.7 times sales.

My take: Avoid both stocks (for now)

Fitbit and GoPro might look tempting at these levels, but both businesses are still fundamentally broken. Unless Fitbit figures out how to grow its U.S. revenues, expand its digital ecosystem, and counter Apple and Huami without hurting its own margins, it remains a risky investment.

Meanwhile, GoPro needs to innovate in new markets -- instead of sluggishly following market trends like drones and VR -- if it plans to salvage the brand's original appeal. Until those things happen, I'd steer clear of both stocks.

Leo Sun has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple, Fitbit, and GoPro. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.