If you were valuing a stock (say to pitch a stock for the buy side), you are looking for stocks that the market has mispriced. Your aim is to have a profitable long or short strategy. Can you use the Capital Asset Pricing Model to value your stock? Two problems come to mind:
CAPM assumes an efficient market. Your whole point is to spot inefficient pricing in the market.
CAPM says $R_i = R_f + \beta(R_M - R_f)$. Now say we will value our stock based on the rate of return and discount future gains. We need to estimate $\beta$, which is calculated based on historical variance and correlation with the market of the return. But this return is based on market pricing. If the market pricing is wrong, then our estimate of $\beta$ will be wrong.
So we should not use CAPM while valuing stocks or doing stock pitches. Am I wrong?