The former Manchester United star, who played 242 games for Everton during eight years at Goodison Park under David Moyes, recently backed his old club to challenge for a top four spot.
But after going four Premier League games without a win, the Blues are sat in 10th place in the Premier League with their failure to finish teams off holding them back.
Everton's last win came in the Capital One Cup against Middlesbrough.
'Cup win is on but league form must improve'
Now Neville speaking in an interview with BreatheSport.com is backing Martinez's side to win some long overdue silverware but insists things need to improve in the league.
"Everton have a great chance to win the Captial One Cup and I really hope they do," Neville told BreatheSport.com.
"However, I do think they are underperforming in the league.
"With the players and the squad that they now have, they should be challenging for the top four.
"Give them time and I’m sure they will."
With the likes of Romelu Lukaku, Ross Barkley, Gerard Deulofeu and John Stones in the Everton side, the Goodison Park outfit look as good a bet as any of the top 10 to make a genuine challenge for the Champions League spots.
Sitting in 10th on 23 points it is probably a step too far to argue the Toffees could mount a title challenge.
Difficult to argue with Neville
But their form in games has been generally good and the Toffees play some of the best football in the league on their day.
It is just a matter of finishing teams off and ensuring they keep things tighter at the back before Everton begin moving up the league table.
Recent draws against Bournemouth - where they twice threw away the lead to draw 3-3 - Crystal Palace and Norwich City could prove costly at the end of the season, though.
To finish in the Champions League spots Everton will need to maintain a near two points per game average from here on in.