The Scot warned that his squad over-achieved with their third-place finish last season.
He insists that large gaps remain in the squad that need to be filled before they can consider themselves promotion contenders.
"We have a lot of work to do still because I said last season that we had three or four pieces of the jigsaw puzzle missing, and we are still a few pieces missing if we want to move on to the next level," Davies told the Nottingham Post.
"We are a team that finished third in the table. Now we want to propel ourselves onwards from that position. If we want to do that, then there is a necessary level of planning and investment required.
"With (David) McGoldrick and (Dele) Adebola now injured and James Perch having left, then we are in a weaker position. Over the next couple of weeks we have to get back to that level and then move beyond it if we are to progress.
"We over-achieved last season and we find ourselves with a weaker squad this season. We have to see who comes and who goes before we can really judge what level we are at. Time will tell on the question of whether we should be regarded as favourites."
Source: PA
Source: PA