It's a dark and stormy night.

Blood, in the form of widening losses, stains the walls red.

Demons, in the form of dwindling market share, are exorcised on a quarterly basis.

A bottomless pit, in the form of mounting accumulated deficits, continues to deepen.

These aren't scenes from Saw IV. They're more like what investors "saw" in last week's report out of XM Satellite Radio (NASDAQ:XMSR).

Don't get me wrong. I'm still bullish on satellite radio. I just know a good horror flick when I see it, and that would be XM as a stand-alone company right now. I didn't even dig into the balance sheet, which now closes with a grim $789.6 million in negative book value. That's what shrinking assets and bubbling liabilities will do to you.

I hope I'm wrong. I hope that XM will be able to hook up with Sirius Satellite Radio (NASDAQ:SIRI) and justify the nearly 50% run that XM shares have had since bottoming out two months ago. A lot of the regulator head-nodding is already baked into the stock. So how much of that gain will XM give up if it has to go it alone?

Jigsaw is at it again
Remember that scene in the original Saw, where the ankle-shackled protagonist realizes that the only way out is to saw off his own foot?

XM is in a similar quandary. Satellite radio is losing the war at the retail level. It closed out the quarter with 17,000 fewer retail subscribers. If you're seeing cobwebs collect at the XM display of your local consumer-electronics superstore chain, it's not a Halloween decoration. It's the real deal.

XM's growth has come from its automaker deals. With more and more cars rolling off the assembly line with factory-installed XM receivers, the company is counting on new-car buyers to get hooked.

Satellite radio is great. I am a subscriber to both XM and Sirius. However, the push to grow at the automaker end isn't ideal. This is where the saw meets the ankle bone. In a push to maintain a larger share of the new-car market than Sirius claims, XM has to offer sweet incentives to the auto companies. The end result is that subscriber-acquisition costs rose in the latest quarter.

It gets messier, though. Just 53% of those who buy new cars with satellite-radio receivers ultimately pay XM to subscribe. It's just a costly dashboard paperweight to the rest. That conversion metric has been pretty consistent, too. In other words, it's not as if satellite radio is a viral wonder. The subscriber base is growing just because the installed base of cars is growing.

OK, so what happens over the next few years? General Motors (NYSE:GM) has already moved more than 5.5 million cars with XM receivers. When those owners trade in their cars, their new subscriptions will coincide with the cancellation of the old ones. XM has been working with automakers to serve up trial offers on used cars, but whom are we kidding here? This market may not be growing all that much in the future. If you think that XM's 20% top-line gain was unimpressive last week, please curb your enthusiasm.

XM is doing a lot of cool things. Streaming at Starbucks (NASDAQ:SBUX), selling tunes through Napster (NASDAQ:NAPS), and mobile broadcasting through Alltel (NYSE:AT) find XM's heart in the right place. However, that's all more style than substance in the XM playbook. Despite all of these ambassadors, XM is still growing slowly. Wall Street expects the red ink to continue next year on 23% in revenue growth, but it's hard to fathom an acceleration of the top line at XM.

In short, without the cost-saving savior to be found in the waiting arms of Sirius, XM is going to have a tough road finding its way back into growth-stock investors' fancy if the merger is axed. That's scary stuff, indeed.

"Buying the hype" is one of four critical investing mistakes that Richard Gibbons recently singled out when it comes to investing. Buying into the mania of satellite radio three years ago stung investors then. And bidding XM as if the merger were a done deal is going to sting investors now if the deal falters.

XM's working that hacksaw. It has cut through its own thick skin and brittle bones. It's in pain, but it thinks it's free.

Sucker. You can't run away without that foot you just severed.

Think I'm right? Think I'm wrong? Cast your vote by pegging XM as an outperform or underperform in Motley Fool CAPS. Then come back on Halloween, when we announce the winner of our World's Scariest Stock contest.  

Want to know what other companies give us the frights? You can view the rest of our hair-raising stocks here.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.