Marcus Tudgay was the Forest match-winner, netting the only goal after just 51 seconds from the edge of the box to secure a sixth successive win.
Davies said: "I think we are great candidates for the play-offs but if I am totally honest I think we are a little bit short for going up automatically. That is my honest evaluation.
"I have a great bunch of players here who work extremely hard and I am very proud of what they are doing.
"At the end of the day I look at what our rivals like Queens Park Rangers, Cardiff and Leicester are doing in terms of preparing themselves for the remainder of the season and that's why I take the view that I am.
"Sometimes I get frustrated because I am desperate to get this team and this club into the Premier League.
"But we have 18 games left to play, 18 big games, and we will attempt to accumulate as many points as we can. But we know that every point will be difficult to get.
"It was a superb three points against a very spirited Watford side today. We were excellent in the first half, played with a good tempo and should have had scored more goals."
Watford boss Malky Mackay rued two controversial penalty appeals went against winger Will Buckley in the second half.
Mackay said: "I thought at the time they were penalties but I was a long way away and couldn't be sure. But I have seen both incidents on DVD after the game and they are unquestionably penalties.
"I know Forest had a penalty appeal of their own but every incident should be taken on its own merit and I was convinced we should have had two today."
Regarding his team's overall performance, Mackay added: "I have got to be very proud of my players today to come to a place like Nottingham Forest, go a goal down inside the first minute and then put on a performance like that on their patch.
"They have shown great resilience and we've had two or three chances in the second half to get something out of the game.
"Forest are a top side at this level and what you look at in this division is consistency and players with the ability to change games. They have that.
"When you look at their bench and the experience and ability they have it just shows you what strength they possess.
"But we have a got great honesty among the players and a group who train hard. All I have asked of them this season is to be competitive and they have once again shown that against a very good side."